South Korea Economy Growth
The South Korean economy is the fourth-largest in Asia and the 11th largest in the world. The country’s economic growth has been described as the “Miracle on the Han River”. It has transformed South Korea from one of the poorest countries in the world following the Korean War, to a developed, high-income country in just a few generations. With an export-oriented economy, South Korea was the fifth-largest exporter and eighth-largest importer in the world in 2018.
In the last three decades, the South Korean economy grew at an average rate of 5.1%. Last year, it recorded a 2.8% growth with a total nominal GDP of $1.65 trillion. The IMF projects South Korea’s economy to grow between 2.6% and 2.8% annually until 2023.
Ageing population and growing unemployment
South Korea has a population of over 51 million, with a GDP per capita of $32,774 in 2018. It has the world’s eighth-highest median household income, the highest in Asia.
However, South Korea’s robust economy is threatened by a rapidly ageing population and a low birth rate. Over 14% of the nation’s population is 65 years old or older. The country’s population is forecasted to shrink to approximately 38 million by the end of the 21st century. This will lead to a significant drop in the labour force.
It is also facing a hike in its unemployment rate. In January 2019, the unemployment rate in South Korea jumped to 4.4 percent, from 3.6 percent the previous year. This was the highest unemployment rate in nine years, with 1.2 million of South Korea’s population jobless.
Currency and central bank
The Korean Won (₩) is the official currency of South Korea. It was initially pegged to the U.S. dollar, but the government let the Won float freely in the 1990’s in response to the Asian currency crisis.
The Bank of Korea is the central bank of South Korea, and issuer of the Won. It was established on 12 June 1950 in Seoul. The primary purpose of the Bank of Korea is to maintain price stability. It also conducts monetary and credit policy with open market operations.
The Bank of Korea set the consumer price inflation target at 2% for 2019 and beyond. In 2018, South Korea’s inflation rate was 1.6%. The IMF expects the country to achieve its inflation rate target for the next five years.
Industry and trade
South Korea has adopted an export-oriented economic strategy to fuel its economy, since it has almost no natural resources. The combined value of exports and imports is equal to 80.8% of its GDP.
Industry and services are major contributors to South Korea’s GDP, totalling over 97.3%. The main industries that drive the South Korea economy are electronics, telecommunications, automobiles, chemicals, shipbuilding, and steel.
South Korea is home to the world’s largest electronic brands: Samsung and LG. The country was named the world’s most innovative country in the Bloomberg Innovation Index, ranking first in business R&D intensity and patents filed per GDP.
Main exports to China and the U.S.
South Korea has been maintaining a trade surplus due to export growth since 2009. In 2018, its exports expanded 7.8% to $625.44 billion, while imports rose 10% to $513.57 billion.
The country’s main exported goods are semiconductors, wireless telecommunications equipment, motor vehicles, computers, steel, ships, and petrochemicals. Exports to China and the U.S. account for nearly 40% of South Korea’s total exports. Meanwhile, its top three import partners are China, Japan, and the U.S.
The World Bank ranked South Korea fifth in “the Ease of doing business” Index 2019. Last year, South Korea witnessed a record $26.9 billion of FDI, up 17.2% from the previous year. Investment came primarily from the U.S. and the Cayman Islands.
Stock exchanges and capital markets
Korea Exchange (KRX) is the only securities exchange operator in South Korea, headquartered in Busan. It was created through the integration of the Korea Stock Exchange, Korea Futures Exchange, and KOSDAQ Stock Market under the Korea Stock & Futures Exchange Act.
As of February 2019, Korea Exchange had 2,265 listed companies with a combined market capitalisation of $1.55 trillion. The main index is KOSPI – Korean Composite Stock Price Indexes. It is the index of all common stocks traded at KRX.
South Korean Economy: Stock Exchange Regulation
According to the Foreign Investment Promotion Law (FIPL), foreign investors including foreign companies and foreign funds, can acquire shares in any Korean company. Foreign investors are also allowed to invest in the Korean equity securities market without any restrictions. However, for certain industries such as aviation, communication and broadcasting, foreign investment is restricted.